Do You Love the Bubbles?

Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

The rising health related concerns about sugary and carbonated drinks is badly hitting the world's largest market of carbonated soft drinks – the US. The consumption of these drinks has fallen ~6% in the last five years. Despite this, SodaStream International (NASDAQ: SODA), the Israeli company selling soda-makers, is growing rapidly.

The company has expanded its presence into 44 countries around the world with its innovative concept of 'make at home soda' machines. Most recently SodaStream's announcement of its global advertising campaign to be launched during the Super Bowl 2013 came out as a sensation in the market. SodaStream enjoys a widespread success in Europe with its home beverage carbonation systems positioned as a cheaper and environment friendly alternative to bottled soft drinks. And, the Super Bowl being the largest showcase of advertising, it provides a golden opportunity for the company to tap into the US market.

The at-home soda market is still in its infant stage in the US and SodaStream has a household penetration rate of just 1%. However, the company is still able to carve a niche for itself and has a huge opportunity in the US market. It would be really interesting to see how the market giants PepsiCo (NYSE: PEP) and Coca-Cola (NYSE: KO) will eventually respond to this.

Both Coca-Cola and Pepsi directly compete with each other and enjoy a ruling position in the US market. At present, the cola giants see no threat from the SodaStream, although the battle would get intense if they consider entering the at-home soda market in the future. Currently, these companies are focusing more on the international expansion to enhance their presence globally. Coca-Cola is betting big on its investments in Vietnam, where Pepsi already has a significant market share there.

Despite continuous losses in this region, Coke is very optimistic about rising prospects in the beverage sector in Vietnam. The company is planning to pour an additional ~$300 million in Vietnam until 2015, bringing its total investment there to ~$500 million over the next five years. On the other hand, PepsiCo is targeting one of the fastest growing economies, China, to boost its global presence. It recently invested ~$45 million in a research center in Shanghai that will be a hub for the production, packaging, and the complete development of its new products throughout Asia.

The third beverage giant of the US Dr Pepper Snapple (NYSE: DPS) is a smaller player in the industry, but has been growing strong against the behemoths. The company has already realized the growing importance of home-brewed drinks. It recently entered into a partnership with Green Mountain Coffee Roasters to offer a home-brew version of Snapple ice-tea. Under this agreement, Dr Pepper will offer Snapple premium iced-tea in K-Cup and Vue packs for the Keurig single cup brewing systems, which are made by GMCR. With the rising competition, this is an innovative move by the company to enhance its market share.

Turning back to SodaStream, lets us have a look at some of the factors which would help the company increase its market presence in the long run.

The Global Branding Campaign

SodaStream recently launched its first global TV campaign with a catchy punch line “If you love the bubbles, set them free.” It was initially broadcast in the US and then later on rolled out to the company's 45 global markets. The company is expected to spend ~$18 million on this campaign, which includes new visual identity, a logo, branding, and of course the tag-line. It aims at building a strong brand image of the company along with a unique positioning. The TV commercial 'The SodaStream Effect,' which shows frizzy drink bottles exploding in shops and warehouses, is expected to challenge the traditional beverage industry. The commercial also aims at promoting a powerful message against wastage and claims to save up to 2000 plastic bottles per year by the use of SodaStream. This campaign would position the brand strongly in the market and it would help the company increase its customer reach.

New Products in the Pipeline

  • The company will launch 'The Source,' a new soda maker designed by Yves Behar, in 4Q 2012. This new machine would be an apt combination of style and efficiency. It will use a snap and lock mechanism for smooth processing and give out a signal when the carbonation is complete. Another product to look forward to in the fourth quarter would be 'Sodacaps.' These are various flavored capsules used with a bottle of carbonated water to flavor the soda. Both these upcoming products are exceptional milestones for the company that combines innovation, technology, and design.
  • The company recently entered into a deal with the Campbell Soup Company to offer V8 Splash and V8 V-Fusion for its carbonation system. The products under this agreement will be available in 2013 and would help the company to further enhance its presence in the US market. 

Looking at the above-mentioned aspects, I think SodaStream is placed in a comfortable place to capture its share in the industry. Since its IPO in 2010, the company has always posted positive results and has raised its guidance above consensus estimates. In its 3Q 2012, the company posted total revenue of ~$112 million, up by ~48% y/y and net income of ~$16.8 million, up by ~65% y/y. I expect this trend to continue for the company with its new product launches and promotional campaigns. The stock is currently trading at ~$39 and is a good entry point for the investors.

ShwetaDubey has no positions in the stocks mentioned above. The Motley Fool owns shares of PepsiCo and SodaStream. Motley Fool newsletter services recommend The Coca-Cola Company, PepsiCo, and SodaStream. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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